Hill v. Portillo (In re Casey)

• Decision Date: 28 January 2022
• Docket Number: Bankruptcy 15-20621 TBM,Adv. Pro. 21-1070 TBM
• Parties: In re: KENNETH C. CASEY, INC. Debtor. v. LIBORIO LOYA PORTILLO, Defendant. JEFFREY L. HILL, Chapter 7 Trustee, Plaintiff,
• Court: U.S. Bankruptcy Court — District of Colorado

In re: KENNETH C. CASEY, INC. Debtor.

JEFFREY L. HILL, Chapter 7 Trustee, Plaintiff,
v.
LIBORIO LOYA PORTILLO, Defendant.

Bankruptcy No. 15-20621 TBM

Adv. Pro. No. 21-1070 TBM

United States Bankruptcy Court, D. Colorado

January 28, 2022

MEMORANDUM OPINION AND ORDER GRANTING TRUSTEE'S MOTION FOR SUMMARY JUDGMENT

Thomas B. McNamara United States Bankruptcy Judge

The common saying, "he's not buying what you're selling," is a good summary of what happened in this confusing dispute involving the bankruptcy estate of Kenneth C. Casey, Inc. (the "Debtor"). The Debtor owned numerous parcels of real property located in Alamosa, Costilla, and Saguache counties in rural south-central Colorado. The Chapter 7 trustee assigned to liquidate the Debtor's estate, Jeffrey L. Hill (the "Trustee"), decided to sell some of the Debtor's real estate holdings. Such non-ordinary course sales can only be conducted "after notice and a hearing" under Section 363(b)(1) of the Bankruptcy Code.^[1]

Toward that end, in 2016, the Trustee filed a "Sale Motion" wherein he specifically identified all of the "Property" (defined in the Sale Motion) to be sold. With respect to Costilla County, Colorado, other than unitized lands not at issue in this dispute, the Trustee identified only three 40-acre parcels of real property (120 acres total) belonging to the Debtor and located in Sections 11 and 12 of Township 32 South and Range 73 West as part of the Property to be sold (the "Authorized Sale Property"). The Trustee also prepared a "Sale Notice" identifying all the Property to be sold,

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including the Authorized Sale Property. The Trustee sent the Sale Motion and Sale Notice to all creditors. No parties in interest objected. Thereafter, the Court entered a "Sale Order" whereby the Court authorized the Trustee to sell, through an auction, the Property specifically identified in the Sale Motion and the Sale Notice: to wit, the Authorized Sale Property.

Unfortunately, the auctioneer conducted an auction whereat it offered only part of the Authorized Sale Property (80 acres instead of 120 acres) and then added to the auction an additional 240 acres of property in Costilla County owned by the Debtor but which was not identified in the Sale Motion or Sale Notice and which the Court did not authorize the Trustee to sell (the "Unauthorized Sale Property"). The Defendant, Liborio Loya Portillo ("Mr. Portillo"), paid the auctioneer $23, 000.00 for it all: the 80 acres forming part the Authorized Sale Property and the 240 acres of Unauthorized Sale Property. Afterward, the Trustee (who did not compare the Sale Motion, Sale Notice, and Sale Order against the auction results) issued two trustee's deeds (together, the Trustee's Deeds") purporting to transfer title to all 320 acres (including part of the Authorized Sale Property and the Unauthorized Sale Property) to Mr. Portillo. Later, the Trustee also sold a 40-acre parcel (which was part of the Unauthorized Sale Property subject to one of the Trustee's Deeds) to someone else: Daniel G. Webb ("Mr. Webb").

Years afterward, a dispute surfaced concerning whether Mr. Portillo owns the real estate identified in the two Trustee's Deeds (i.e., part of the Authorized Sale Property and the Unauthorized Sale Property). The Trustee now essentially claims there was a mistake. He filed this lawsuit against Mr. Portillo requesting a declaratory judgment that the two Trustee's Deeds he issued to Mr. Portillo "are void and that Mr. Portillo has no interest in the real estate described [in the two trustee's deed]" because most of the real estate listed in the two Trustee's Deeds was not identified in the Sale Motion and the Sale Notice nor authorized by the Court to be sold in the Sale Order. However, the Trustee does concede that Mr. Portillo should receive some type of refund. The Trustee also asked that the subsequent sale to Mr. Webb be determined to be valid and enforceable. Mr. Portillo contests the Trustee's claims and asserts that the two Trustee's Deeds are valid such that he is the owner of the real estate listed in the two trustee's deeds. In addition, Mr. Portillo asserts a counterclaim against the Trustee seeking damages arising from the Trustee's "negligent breach of fiduciary duty."

In the lead up to trial, the Trustee filed a motion for summary judgment requesting summary judgment on the Trustee's declaratory judgment claim. Mr. Portillo contests such relief. Ultimately, the Court concludes that it cannot ratify purported sales of real property that do not comport with the requirements of the Bankruptcy Code and the Federal Rules of Bankruptcy Procedure. Based upon the undisputed facts, the two Trustee's Deeds are void because most of the real estate listed in the two Trustee's Deeds was not identified in the Sale Motion and the Sale Notice nor authorized by the Court to be sold in the Sale Order. Thus, declaratory judgment will enter in favor of the Trustee and against Mr. Portillo. Declaratory judgment also will enter confirming the validity of the transfer to Mr. Webb. But that will not be the end of the story. The Court must determine the appropriate remedy for Mr. Portillo given that the two Trustee's

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Deeds are void. Also, Mr. Portillo's counterclaim against the Trustee for "negligent breach of fiduciary duty" will proceed to trial.

I. Jurisdiction and Venue.

The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334(b) and (e) and 28 U.S.C § 157(b). This is a core proceeding under § 157(b)(2)(A) (a matter concerning administration of the Debtor's bankruptcy estate) and (0) a proceeding affecting the liquidation of the estate. Venue is proper in this Court under 28 U.S.C. §§1408 and 1409.

II. Procedural Background.

A. The Main Bankruptcy Case.

On September 22, 2015 (the "Petition Date"), the Debtor filed for relief under Chapter 7 of the Bankruptcy Code, commencing Bankruptcy Case No. 15-20621 TBM (the "Main Case").^[2] On September 23, 2015, Jeffrey L. Hill was appointed in the Main Case to serve as Trustee for the Debtor's estate.^[3]

Certain events which occurred in the Main Case following the Trustee's appointment are both "procedural history" and facts central to the dispute. While the parties seem to view the legal import and effect of certain events which occurred in the Main Case through different lenses, the fact that such events occurred in the Main Case is not in dispute. To the extent that such events constitute facts relevant to the Court's determination of the Trustee's claim, the Court will address such facts in the "Undisputed Facts" section of this Order.

B. The Adversary Proceeding.

The Trustee initiated this adversary proceeding on April 12, 2021, by filing a "Complaint"^[4] against Mr. Portillo, Mr. Webb, and Dickensheet & Associates, Inc. ("Dickensheet"), seeking declaratory relief pursuant to Fed.R.Bankr.P. 7001. Specifically, the Trustee requested that the Court issue an order declaring that two Trustee's Deeds issued to Mr. Portillo are void because most of the real estate listed in the two Trustee's Deeds was not identified in the Sale Motion and the Sale Notice, and because its sale was not authorized by the Court in the Sale Order. The Trustee also requested declaratory judgment that a trustee's deed issued to Mr. Webb is valid and enforceable. Mr. Webb and Dickensheet have been dismissed as defendants from this adversary proceeding.^[5] Mr. Portillo filed an "Answer" in which he denied that the two

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trustee's deeds are void and requested a jury trial.^[6] The Court struck Mr. Portillo's jury demand.^[7] Thereafter, Mr. Portillo submitted an "Amended Answer and Counterclaim," again denying that the two trustee's deeds are void and asserting a counterclaim against the Trustee for grossly negligent breach of fiduciary duty pursuant to 11 U.S.C. §704and28U.S.C. § 959.^[8]

The real property dispute now comes before the Court for consideration on the "Plaintiff's Motion for Summary Judgment and Memorandum of Law in Support thereof" (the "Summary Judgment Motion")^[9] filed by the Trustee, the "Defendant's Response Opposing Plaintiff's Motion for Summary Judgment and Memorandum of Law in Support Thereof" (the "Response")^[10] filed by Mr. Portillo, and the Reply thereto (the "Reply")^[11]filed by the Trustee.

III. Legal Standard Governing Motions for Summary Judgment and Burden of Proof.

Motions for summary judgment are governed by Fed.R.Civ.P. 56, as incorporated herein by Fed.R.Bankr.P. 7056. Summary judgment is appropriate if the pleadings, depositions, answers to interrogatories, admissions, or affidavits show that there is "no genuine dispute of material fact and the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986) (quoting Fed.R.Civ.P. 56(c)). The moving party bears the initial burden of identifying the basis for its motion and designating those portions of the record which it believes entitles it to judgment. Fed R. Civ. P. 56(c); Celotex, 477 U.S. at 323. In response, the nonmovant "must do more than simply show that there is some metaphysical doubt as to the material facts . . . ." Matsushita Elec. Indus. Co. Ltd. v. Zenith Radio Corp., Alb U.S. 574, 586-87 (1986). Instead:

[T]he nonmovant that would bear the burden of persuasion at trial may not simply rest upon its pleadings; the burden shifts to the nonmovant to go beyond the pleadings and "set forth specific facts" that would be admissible in evidence in the event of trial from which a rational trier of fact could find for the nonmovant. ... To accomplish this the facts must be identified by reference to affidavits deposition transcripts, or specific exhibits incorporated therein

Adler v. Wal-Mart Stores, Inc., 144 F.3d 664, 671 (10th Cir. 1998) (citations omitted). See also Savant Homes, Inc. v. Collins, 809 F.3d 1133, 1137 (10th Cir. 2016)...